Abacus Property Group – Annual Financial Report 2018

ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
12. FINANCIAL INSTRUMENTS (continued)
(d) Fair values
The fair value of the Group’s financial assets and liabilities are approximately equal to that of their carrying
values.
Class of assets /
liabilities
Fair value
hierarchy Valuation technique Inputs used to measure fair value
Investment properties Level 3 Discounted Cash Flow ("DCF") and
Income capitalisation method
Adopted capitalisation rate
Optimal occupancy
Adopted discount rate
Property, plant and
equipment
Level 3 Income capitalisation method Net market EBITDA
Optimal occupancy
Adopted capitalisation rate
Derivative - project
entitlement
Level 3 Residual cash flow analysis Project cash flow forecast
Project payment priorities
Securities and options
- unlisted
Level 3 Pricing models Security price
Underlying net asset
Property valuations
Derivative - financial
instruments
Level 2
DCF (adjusted for counterparty credit
worthiness)
Interest rates
Consumer Price Index ("CPI")
Volatility
Level 1
Level 2
Level 3
Quoted prices (unadjusted) in active market for identical assets or liabilities;
Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Inputs for the asset or liability that are not based on observable market data.
There were no transfers between Levels 1, 2 and 3 during the period.
Income capitalisation method
Discounted cash flow method
Residual cash flow analysis
Pricing models – unlisted
securities
Pricing models – options
This method involves assessing the total net market income receivable from the property and
capitalising this in perpetuity to derive a capital value, with allowances for capital expenditure
reversions.
Under the DCF method, the fair value is estimated using explicit assumptions regarding the benefits
and liabilities of ownership over the assets’ or liabilities’ life including an exit or terminal value. The
DCF method involves the projection of a series of cash flows from the assets or liabilities. To this
projected cash flow series, an appropriate, market-derived discount rate is applied to establish the
present value of the cash flow stream associated with the assets or liabilities.
The analysis takes into account the time value of money in a more detailed way than simply a
developer’s profit margin as it considers the timing of all costs and income associated with the project.
The fair value is determined by reference to the net assets which approximates fair value of the
underlying entities.
The fair value is determined using generally accepted pricing models including Black-Scholes and
adjusted for specific features of the options including share price, underlying net assets and property
valuations and prevailing exchange rates.
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